IRD going after multinational tax cheats

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"Shortfall" penalties imposed on those who fail to pay or actively attempt to avoid paying their tax totalled $63 million to June 2012, up from $44.5m the previous year.

The penalties are levied in cases where taxpayers have been found to have underpaid tax either as a result of an IRD audit or investigation, or because the taxpayer 'fessed up.

However, the full amount assessed may not end up in the Treasury as a significant amount of the total is being disputed and some more will be written off as a result of the bankruptcy and insolvency of taxpayers.

According to a report released to the Sunday Star-Times, nearly $47m of the total is penalties imposed on multinational companies who used "complex financing arrangements" to reduce the tax they paid in New Zealand. A significant amount of that is being disputed.

There has been a focus on multinational company tax issues this past week with the release of an OECD report into the strategies they have been using to allow companies to effectively set their own tax rates.

In the UK there has been outrage and parliamentary inquiries into the amount of tax paid by global companies such as Starbucks and Google while, at home, Revenue Minister Peter Dunne warned that the use of clever cross-border structuring by big business threatened to undermine the public's trust in the tax system, and the willingness of ordinary people to pay their tax.

Journalists have been able to identify many of the multinationals the IRD believes have underpaid tax using such complex cross-border financing arrangements because the financial reports of overseas-owned New Zealand companies are public documents lodged with the Companies Office.

However, the Government is planning to allow many of the smaller ones to keep their financial statements secret.

Companies which have in recent years been caught in the IRD's audit sights include banks such as Westpac, BNZ, ANZ and Rabobank, telecommunications company Telstra and cigarette seller British American Tobacco.

Disputes which appear to still be live, according to financial statements posted with the Companies Office, include Qantas, which has elected to use $10.3m of tax losses to cover tax assessed as a result of its use of optional convertible notes.

Qantas is continuing to dispute the IRD's assessment.

IRD is also seeking $19m from Toll Group, the previous owner of New Zealand's railways.

The report not only shows the number of cases in which penalties are imposed - 771 - but also the number of cases where penalties were imposed and then reduced due to voluntary disclosure. That is because if a taxpayer confesses to underpayment of tax before an audit, all shortfall penalties may be waived.